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Natural Gas: When Will the Long-Awaited Rebound Come?

Published 02/28/2024, 01:32 AM
Updated 05/27/2024, 01:10 PM

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When will there be the long-awaited rebound in gas prices?

After a sharp drop of 7.5 percent in the previous session, the U.S. Natural Gas Future - Apr 2024 (NGJ4) rose slightly above the $1.65/MMBtu mark. Traders are facing an oversupply situation with high storage levels and weak demand due to a mild winter.

However, producer efforts to curb production are providing some support. Despite a brief interruption in January due to Arctic frost, gas production still remains at historic highs. The mild weather has led inventories to be well above average, as evidenced by EIA's latest report showing storage levels 22.3 percent above normal.

As a result of prices falling to their lowest in 3 1/2 years, Chesapeake Energy has reduced its production plans

With natural gas prices near multi-year lows, it is fair to ask whether this is a good buying opportunity.

To get an accurate forecast of the future of the gas market, it is critical to analyze the outlook of its producers. These companies provide valuable data that can help us determine whether the stock is overvalued or undervalued.

In addition, by considering the correlation between these companies and natural gas futures, we can get a better idea of the trend of the natural gas market.

If you are thinking of investing in this sector, avoid doing so through futures. We are currently in a Contango situation. This means that future prices are higher than the current futures price, causing an upward curve.

As we get closer to the expiration date of the contract, the gap between the spot and future prices will narrow, causing the curve to converge back to the spot price.

If you are looking to invest in gas, your best choice would be to buy shares in gas producers. In this article, we will take a look at Antero Resources (NYSE:AR) Corp using INVESTING PRO as a tool to better understand the financial aspects of the company.

INVESTING PRO is like having a high-level financial advisor at your fingertips. Because of its intelligence, it automatically analyzes the company providing you with important data that would otherwise take months of study to calculate.

As the pictures show, the stock is overvalued, as evidenced by the FAIR VALUE which indicates a potential decline of 28.7 percent.
Antero Resources Fair Value

This means that it is still too early to buy natural gas. The ideal time might be the second quarter of the year.

With the arrival of a hot summer, the demand for natural gas to power air conditioning systems could increase significantly. As a result, we expect the price of natural gas to increase starting in April.

It should be kept in mind that the demand for natural gas for summer cooling is much lower than the demand for winter heating in the United States. According to the average seasonal data for the past 5 years, January is the month with the highest demand for natural gas, while July slightly exceeds August as the peak summer month. Overall, total gas consumption in the United States in January is 35.5 percent higher than the demand recorded in July.

An opportunity to increase gas prices could come from a major player in the energy sector such as Chesapeake Energy Corp (NYSE:CHK), which recently announced a 20 percent reduction in capital asset investment. This will result in a decrease in the number of drilling rigs, thus reducing gas production and oversupply in the market.

We look forward to your next article! And remember, always rely on Investing Pro for your trading: an essential tool that can help you avoid serious mistakes in your trading.

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